OPEC Oil Market Highlights August 2018

In July, the OPEC Reference Basket increased marginally by 5¢ m -o-m to settle at 73.27/b. Oil futures saw mixed movement over the month, while US oil inventories continued to drain, particularly in Cushing, Oklahoma. ICE Brent averaged 99¢ m-o-mlower at $74.95/b, while NYMEX WTI rose $3.26 m -o-m to $70.58/b. Year-to-date (y-t-d), ICE Brent is $19.53 higher at $71.72/b compared to the same period a year earlier , while NYMEX WTI climbed $16. 70 to $66.20/b. The ICE Brent/NYMEX WTI spread narrowed by $4.25/b to $4.37/b in July . Speculative net long positions ended the month lower, particularly for ICE Brent.

The Dubai market backwardated structure eased again, while Brent flipped into contango for the remainder of the year. In the US, WTI backwardation increased significantly for the second successive month. Apart from the USGC costal grades, the global sour discount to sweet crudes increased due to a surplus of sour crudes.

World Economy

The global GDP growth forecast remains at 3.8% for 2018 and 3.6% for 2019, unchanged from the previous assessment . After a strong 2Q18, US growth was revised up by 0.1 pp in both 2018 and 2019, reaching 2.9% and 2.5% , respectively. Euro-zone growth slowed and the Forecast s were revised down by 0.2

pp to 2% for 2018 and by 0.1pp to 1.9% in 2019. Growth in Japan remains at 1.2% in 2018, and the same level is projected for 2019. India’s forecasts are unchanged at 7.3% for 2018 and 7.4% for 2019. After solid growth in 1H18, China’s growth forecast was revised up by 0.1 pp to now stand at 6.6% for 2018 and remains at 6.2% for 2019. Growth in Brazil was revised down by 0.1 pp , reaching 1.6% in 2018, but a mild rebound to 2.1% is anticipated in 2019. Russia’s GDP growth forecast remains unchanged at 1.8% in both 2018 and 2019.

World Oil Demand

In 2018, oil demand growth is anticipated to increase by 1.64 mb/d, 20 tb/d lower than last month’s projections , mainly due to weaker -than-expected oil demand data from Latin America and the Middle East in 2Q18. Total oil demand is anticipated to reach 98.83 mb/d. For 2019, world oil demand is forecast to grow by 1.43 mb/d, also some 20 tb/d lower than last month’s assessment

Total world consumption is anticipated to reach 100.26 mb/d. The OECD region will contribute positively to oil demand growth, rising by 0.27 mb/d y-o-y, yet with growth of 1.16 mb/d, non- OECD nations will account for the majority of growth expected.

World Oil Supply

Non-OPEC oil supply in 2018 was revised up by 73 tb/d from the previous MOMR to average 59.62 mb/d, representing an increase of 2.08 mb/d y-o-y. The main reason for this upward revision was an adjustment for the Chinese supply forecast due to the higher -than- expected oil output in 1H18.

Non- OPEC oil supply in 2019 is projected to reach an average of 61.75 mb/d, indicating an upward revision by 106tb/d, mostly due to a re-assessment of the Chinese supply forecast for the next year. However, y-o-y growth was revised up by only 34 tb/d , to average 2.13 mb/d, owing to downward revisions in the US and Australian supply forecasts. The US, Brazil, Canada, the UK, Kazakhstan, Australia and Malaysia are the main growth drivers; while Mexico and Norway are expected to see the largest declines.

The 2019 forecast remains subject to many uncertainties. OPEC NGL production in 2018 and 2019 is expected to grow by 0.12 mb/d and 0.11 mb/d to average 6.36mb/d and 6.47mb/d, respectively. In July, OPEC production increased by 41 tb/d to average 32.32 mb/d, according to secondary sources.

Product Markets and Refining Operations

In July, US margins recorded solid losses as crack spreads for all products with the exception of fuel oil declined, due to weaker fundamentals and higher feedstock costs. Strong middle distillate stock builds and an all-time record breaking jet fuel output further pressured USG C refining margins.

In Europe, product markets recorded moderate gains on the top and bottom of the barrel, supported by firm exports outweighing losses seen in the middle of the barrel. Meanwhile, product markets in Asia strengthened, supported by robust gasoline demand from India, lower fuel oil arrivals from Europe and lower crude prices, which led to reduced feedstock costs for refiners, while gasoil output in China hit new highs.